Research Update
19
Jul
In recent years, the growth rate and proportion of private sector investment have shown a declining trend. Private investments face challenges in various aspects such as financing channels, legal environment, policy systems, industry competition, investment returns, and environmental assessment. To gain an in-depth understanding of the current status and causes of private sector investment, the National Academy of Development and Strategy at Renmin University of China and the National Academy of Small and Medium Enterprises jointly held a discussion on promoting private sector investment. The meeting proposed the following recommendations: To promote private enterprise investment, it is necessary to further streamline the financing channels for private enterprises, especially by relaxing controls on direct financing; in the legal aspect, it is essential to improve the legal environment for private enterprises, strengthen intellectual property protection, and create a fair competitive market environment for enterprises; in terms of policy, maintaining policy stability and continuity, reducing taxes and other operating costs, and expanding the coverage of preferential policies are needed to alleviate the burden on enterprises; in terms of third-party services, the accuracy of statistical data should be improved, a decision support system based on full-sample data analysis should be constructed, and the accuracy of policy formulation and enterprise investment should be enhanced.
On June 28, a discussion on the 'Current Status, Causes, and Recommendations of Private Sector Investment' was organized, inviting entrepreneurs from various industries and experts in related fields to share their views.
1. Improving the Authenticity and Accuracy of Private Sector Investment Statistics
Chen Yongjie, Deputy Director of the Beijing Dacheng Enterprise Research Institute and former Deputy Director of the Industrial, Trade, and Economic Affairs Department of the State Council Research Office, introduced the overall situation of private sector investment and emphasized the need to improve the authenticity and accuracy of investment statistics. Regarding the current state of investment, the growth rate of private investment is lower than the national average. In recent years, the growth rate and proportion of private investment have both declined, making the reduction in private investment a major reason for the slowdown in the overall economic growth.
In terms of statistical data, China's investment data has undergone significant adjustments, especially with the substantial reduction in historical data by the National Bureau of Statistics. This adjustment has had a profound impact on the assessment of the investment situation. In 2023, the fixed capital formation rate reached as high as 96.2%, which suggests potential issues with the statistical data. For private sector investment, there are significant discrepancies in growth rates calculated using different criteria. These phenomena require the close attention of policymakers and in-depth analysis.
In his recommendations, Chen Yongjie pointed out that to ensure policy effectiveness, it is crucial to address the discrepancies between statistical data and the actual experiences of enterprises and the public. Measures must be taken to resolve this issue. Enhancing the transparency and accuracy of statistical data is key to ensuring that policies are formulated based on real data.
2. Streamlining Financing Channels for Private Enterprises
Yang Jie, Executive General Manager of CITIC Construction Capital Management Co., Ltd., analyzed the current difficulties faced by private enterprises and the reasons for the decline in investment from a financing perspective. Yang Jie pointed out that the difficulty of getting listed has significantly increased, leading to a sharp decline in the amount of financing, which directly affects enterprises' ability to conduct equity financing through the capital market. With the strengthening of compliance regulations, some private enterprises have withdrawn their listing applications due to compliance concerns, further reducing their opportunities to finance through the capital market.
Additionally, the tightening of split listings has weakened the avenues for enterprises to raise funds through the listing of subsidiaries. In the context of a lukewarm capital market, even companies that are already listed have found equity financing to be more challenging, as the market remains cautious about over-financing activities by enterprises. This is particularly true in industries such as new materials, which require long-term research and technology accumulation, where the lack of patient capital has created funding shortages for related enterprises in their R&D and commercialization endeavors.
The limitations on financing channels and the uncertainty of the market environment have led private enterprises to exhibit significant caution in their investment and expansion decisions, resulting in reduced investment confidence. Furthermore, macroeconomic fluctuations, including the slowdown in economic growth and increased market uncertainty, may also weaken investors' willingness to invest, affecting enterprises' financing capabilities. Considering these factors, private enterprises face numerous obstacles in obtaining funds, which not only restricts their investment activities but also impacts their expansion plans.
3. Traditional Industries Facing Triple Pressure: Intense Competition, Environmental Assessment, and Difficulties in Transformation
Lei Qiyun, International Business Manager of Yibin Huimei Thread Co., Ltd. in Sichuan Province, explained the reasons for conservative investment in traditional industries based on the company's operations. Firstly, intense competition within the industry makes it difficult for companies to achieve sufficient profits to support further investment and development. Despite the company as a whole being profitable, losses in domestic sales have forced it to rely on export business profits to cover the deficits. In this context, some companies choose to transfer investments abroad to avoid the fierce domestic competitive environment. Additionally, the company faces migration costs due to stricter environmental policies, which impact the company's operations and supply chain. Finally, Lei Qiyun mentioned that transforming the industry is challenging. Existing investment projects are not performing as expected, failing to achieve the anticipated profitability, further intensifying the company's cautious approach to new investments. Given the current market environment and operational uncertainties, Yibin Huimei Thread Co., Ltd. tends to be conservative in investment decisions and is reluctant to increase new investments lightly.
4. Improving the Legal Environment for Private Enterprises and Maintaining Policy Stability and Continuity
Cai Jianhui, co-founder and CEO of Jinlianhuixin Technology Development (Beijing) Co., Ltd., pointed out the challenges faced by private enterprises in the current legal and policy environment. In terms of labor arbitration, certain legal provisions increase operating costs and compliance requirements, reducing the flexibility of enterprises in responding to economic uncertainties. Furthermore, in the area of intellectual property protection, many private enterprises face issues of infringement during the internationalization process, with infringing parties including not only foreign companies but sometimes even domestic state-owned enterprises. Even when winning legal cases, private enterprises often receive negligible compensation, revealing deficiencies in the current legal system's protection of intellectual property, which weakens the motivation and confidence of private entrepreneurs to innovate, thereby affecting their investment and business activities in the domestic market.
Cai Jianhui also mentioned that private enterprises often encounter invisible barriers when participating in major projects, such as unfair conditions in bidding processes, high costs of rights protection, and insufficient penalties. At the policy level, continuity and stability of policies are crucial for enterprises, forming the basis for stable expectations and investment willingness among entrepreneurs. Therefore, he suggested that policy formulation should fully consider the actual situations of enterprises, maintain policy continuity and predictability, and strengthen the protection of intellectual property for private enterprises.
5. Overcapacity in the Semiconductor Industry, Increased Revenue Without Increased Profit, and the Need for Further Policy Support
Chen Dongpo, Deputy General Manager of Sanan Optoelectronics Beijing, explained the multiple reasons for reduced investment by private enterprises in the semiconductor industry. Firstly, insufficient market demand and overcapacity have led to significant inventory backlogs, causing companies to be cautious about full-scale operations, fearing that market demand cannot absorb the existing capacity, directly impacting further investment decisions. Secondly, the semiconductor industry faces pressure from the relocation of the industrial chain, with many companies starting to move to regions like Southeast Asia, increasing operational costs for existing enterprises. Some companies are also forced to set up factories abroad due to political factors or international trade security issues, particularly noticeable in the relocation of RF products.
In terms of performance, although the LED industry achieved revenue of 14 billion yuan last year, profits declined, limiting the investment capacity of enterprises. Lastly, issues with policy implementation cannot be ignored. Some local governments offer preferential policies to attract projects, but these promises often fall short in practice or are not fulfilled at all, severely undermining enterprises' confidence and motivation for reinvestment. In terms of policy recommendations, enterprises hope the government can reduce taxes and other operating costs to alleviate their burden and expand the coverage of preferential policies for private enterprises.
6. Private Enterprise Investment Declining, Government Efforts Yet to Show Results
Du Zhong, Deputy Director of the External Cooperation and Investment Services Bureau of Sanjiang New District in Yibin City, Sichuan Province, provided a detailed report on the current state of private investment in Yibin City. In the first quarter of 2024, the added value of the private economy in Yibin City reached 50.73 billion yuan, ranking third in Sichuan Province, with a year-on-year growth rate of 9.5%, 2.8 percentage points higher than the provincial average, ranking first. Looking back at 2023, the added value of the private economy reached 219.75 billion yuan, accounting for 57.7% of Yibin's GDP, with total tax revenue of 11.5 billion yuan, a year-on-year increase of 28.5%. This growth was mainly concentrated in the secondary industry, particularly the photovoltaic industry.
However, overall, private enterprise investment is showing a declining trend. Yibin City has seven enterprises selected for the top 100 private enterprises in Sichuan, five of which are located in Sanjiang New District, where private enterprises contributed 51% of the district's tax revenue in the first quarter. However, facing macroeconomic fluctuations and international trade challenges, the development of the private economy in Sanjiang New District is encountering a series of challenges. The growth rate of private investment has declined for three consecutive years, and the growth of private enterprise exports has also significantly slowed down.
7. High Investment Costs of Large Models Facing Dual Challenges of Market Pricing and Insufficient Bidding Funds
Su Bo, Deputy General Manager of iFlytek's Financial Technology Division, provided an in-depth explanation of the company's current investment and operational status in the field of artificial intelligence. Recently, the company has reduced its investment scale due to multiple factors. In terms of market pricing, intensified industry competition has forced companies into price wars, particularly due to aggressive market strategies from competitors, which adversely impact profit margins and investment returns across the industry. On the investment funding side, the company's expenditures on hardware acquisition and large model development have significantly increased, putting substantial pressure on the company's finances. State-owned banks offer bids for large model tenders that are far below the actual required costs, resulting in winning bids that cannot cover project expenses, further weakening the company's motivation to invest in large models.
8. Building a Decision Support System Based on Full Sample Data Analysis
Sun Huifeng, Chairman of Beijing Shangqi Digital Technology Co., Ltd., outlined the financing situation revealed by the company's self-operated data platform. He noted that recent years have seen a decline in primary market financing activities and total amounts, weakening companies' ability to secure external funds and limiting their investments in key areas such as expansion, R&D, and marketing. Tightening of funds by fund management companies exacerbates this issue, while government-backed industrial investment platforms, with relatively ample funds, might become new funding sources for companies. Diminished market confidence and strengthened risk management prompt companies to adopt more cautious investment decisions. Sun Huifeng suggested establishing a new industrial technology service system, building a decision support system based on full sample data analysis, and integrating technology and algorithms to significantly enhance decision-making accuracy, thereby providing solid data support for policy-making and enterprise development.
9. Real Estate Industry Facing Multiple Challenges, Insufficient Policy Support for Private Enterprises
Xu Xiaole, Chief Expert at Beike Research Institute, described the difficulties faced by private enterprises in the real estate industry concerning policy environment, market performance, financing, and industry competition. In terms of policy environment, amid the continuous strengthening of real estate market regulation policies, private enterprises face tremendous pressure in obtaining funds and managing debts. Regarding market risks, reduced investment returns and market contraction make private enterprises more cautious about real estate investments. On the financing side, tightening of financing channels, especially adjustments in real estate credit policies by banks and financial institutions, restrict private enterprises' funding sources, weakening their competitiveness in the land market and project development. In industry competition, the increasing role of state-owned enterprises in the real estate market leads to more intense competition for land acquisition and project development for private enterprises. The pressure of industry transformation forces some private real estate companies to reconsider their market positioning and development strategies. The real estate industry is gradually shifting from incremental construction to stock operation, requiring companies to have stronger operational and innovation capabilities. Some private real estate companies may choose to exit due to a lack of transformation capabilities. Although policy-level rescue measures aim to stabilize the market, their limitations reveal insufficient support for private enterprises. The rescue policies tend to save projects rather than enterprises, making it difficult for private enterprises to obtain the necessary funding support, affecting their continued operation and development.
10. Providing Financial Support to Promote Technology Empowerment in Serving Private Enterprises
Wang Xiaowen, Deputy Director of the Inclusive Finance Division of Postal Savings Bank of China, elaborated on the bank's support measures for private enterprises and its future development direction. In terms of support measures, the Postal Savings Bank of China quickly responded to national support for the private economy at the policy level, optimized resource allocation and credit plans, and treated private enterprises equally with fair credit. Close cooperation with national departments ensures effective implementation of policies. In the field of technology finance, the bank uses reloan policies to provide low-cost funds for enterprises, promoting technological upgrades, and has launched the 'U-YiChuang' technology financial service system. Through the 'technology flow' evaluation system, it alleviates information asymmetry and enhances service convenience. The bank also provides the 'Postal Savings Easy Enterprise Operation' service platform, integrating daily business scenarios to assist small and micro enterprises in digital transformation.
Facing economic challenges, the Postal Savings Bank of China has noticed a decline in private enterprises' financing needs, with the financing difficulties of startup technology companies still needing resolution. Therefore, the bank is exploring new technology empowerment, promoting the digital transformation of credit technology to serve private enterprises more accurately. The bank invests funds in technology construction annually, actively exploring the comprehensive integration of new technologies such as blockchain and artificial intelligence with financial services. Looking ahead, the Postal Savings Bank of China will continue to deepen services through technological innovation and service model optimization, improving service efficiency and quality, focusing on the needs of private enterprises, responding to national policies, and providing more precise and effective financial support to assist their sustainable and healthy development.
11. High-Quality Hard Technology Investment Projects Relatively Scarce, Improving Market-Oriented Fund Exit Mechanism
Xia Yuhong, Partner at Beijing Yanxia Innovative Technology Services Co., Ltd., provided insights into private investment in early-stage and high-tech projects from an investor's perspective. Investment trends indicate increasing market interest in high-tech projects. Despite ample funds, genuinely high-quality hard technology projects are relatively scarce, limiting investors' choices and making them more cautious in project selection. In terms of enterprise development, private enterprises have a significant demand for funds and talent. Early-stage projects may rely on talent subsidies to attract and retain key talent, while later-stage projects tend to seek support from government guidance funds to promote capacity landing and expansion. However, government funds often come with certain conditions, such as requiring enterprises to relocate their headquarters to specific areas, which challenges the enterprises' flexibility and autonomy. Tightening national policies, especially the increased thresholds for listed companies, further exacerbate private enterprises' financing difficulties, affecting the market-oriented fund exit mechanism and reducing the number of annual investment projects. Considering these factors, private enterprises must face the uncertainties brought by policy changes and the high standards required for high-tech projects while pursuing development. To ensure sustainable development, enterprises need to flexibly adjust their strategies to adapt to the continuously changing financing environment and policy directions.
(Translated by ZHANG Yuqing; Proofread by YANG Fanxin)
Contributors:
Sun Wenkai, Senior Fellow at the National Academy of Development and Strategy; Deputy Director of the National Academy of Small and Medium Enterprises; Professor at the School of Economics, Renmin University of China.
Yang Yan, Master's student at Renmin University of China.
The 'Biweekly Policy Analysis Meeting' is a high-end policy discussion and exchange platform developed by the National Academy of Development and Strategy at Renmin University of China (NADS). It aims to promote the construction of NADS as a high-end think tank characterized by a 'new platform, extensive network, interdisciplinary and cross-cutting approaches, innovation promotion, and high output' through the research, analysis, and comprehensive evaluation of public policies. This platform gathers high-quality resources from within and outside the university, as well as from government, industry, and academia, striving to provide 'Renmin University perspectives' on major policy issues in fields such as politics, economics, society, culture, ecology, law, and diplomacy.